5 lessons from economics to have a “welfare surplus”

Posted by

Mental schemes and ways of thinking that approach theoretical economics, and that can help convince people that incorporating healthy habits is more beneficial than they think

What is the first thing that comes to mind when we talk about “welfare economics ? Probably some framework of progress, a Nordic welfare state, with record per capita income and also “happiness” or emotional well-being. A second image could be that of all the money and the market that the new welfare agenda involves: the 1.5 billion dollars a year (millions of millions of dollars, several times the GDP of Argentina) that, for the consulting firm McKinsey, move the industry of health, care, sports, sleep, healthy food and everything included in an ever-expanding universe.

 

But there is a third proposal that has to do with mental schemes and ways of thinking that approach theoretical economics, and that can help us convince ourselves that incorporating healthy habits is more beneficial than we thought. Let’s look at five of the less obvious and more valuable:

It is the set of daily micro-decisions, and accumulated over time, that will change the lifestyle and its quality
It is the set of daily micro-decisions, and accumulated over time, that will change the lifestyle and its qualityShutterstock
  • The secret weapon of investors: The “magic” of what is known in finance as “compound interest” is what makes money at a certain interest rate multiply after a few years, with which the first recommendation in this field is always to start saving and investing as soon as possible. The same thing happens with healthy habits: time plays in favor of these micro-decisions accumulated every day. And the dynamic also works in the opposite direction: time plays against bad habits. A cigarette in one day does very little damage, but the accumulated in several years can be deadly.
  • Not breaking the streak: Princeton economist Rolan Benabou worked on models of “egonomy” (“economy of the self”) and economics of temptations. He developed a mathematical scheme to better understand the “personal rules” that someone establishes with himself: run three times a week at a certain time, smoke only after meals, and so on. A central element of the scheme is “self-reputation”: following or not complying with self-imposed rules increases or decreases one’s reputation with oneself.One of the conclusions of the model (which is verified in real life) is that people tend to carry out tasks that require a lot of willpower due to “streaks”: they go to the gym for six months and accumulate self-reputation, which later is invested in “throwing blackmail” for a few months. And something similar happens with diets: we hold out for a while, and as soon as we give ourselves a permit, the marginal cost of the second skid (in terms of self-reputation) is lower, with which we fall into the negative spiral.
  • Loss aversion: Economists’ ideas for strengthening self-control came out of mathematical equations and into real life years ago. Two academics from Yale University, Dean Karlan and Ian Ayres, went so far as to create a digital space in which one could make a contract or bet with oneself for the future.A goal was set and a substantial amount of money (typically $5,000 or $10,000) was deposited. If after a while the goal was not met, the money went to a charity. The success rate exceeds 85% and rises to more than 90% if a masochistic but very effective option is chosen: asking for the deposited money to be donated to a cause that is hated (“anti-charity”). To the ultra-right campaign, if one is from the left; to River, if one is from Boca. Karlan and Ayres based their idea on a basic principle of behavioral economics: the “loss aversion” bias, which indicates that a failure or a loss impacts our emotional well-being three times more than a win or a success.(with the sign changed). Here the incentives are inverted: you go from the reward (seeing yourself thinner, feeling better) to the punishment (losing money), which is three times more efficient.
  • All or Nothing: Economist Adam Davidson wrote an article in The New York Times Sunday Magazine “How Economics Can Help You Lose Weight” in which he recounted how game theorist and Nobel laureate Thomas Schelling taught him that in many circumstances the schemes that involve “all or nothing” alternatives are the only efficient ones to achieve lasting commitments.Schelling applied it to Cold War strategies (the great source of inspiration for early developments in game theory), but Davidson used them to lose weight. “The problem is that all the market forces point to the «third options», which make us reduce the guilt (buy diet books, pay the fee of a gym that we never go to, drink diet drinks), with which the target becomes even more difficult,” Davidson said.
  • Positive net present value: Scholars of longevity issues speak of the concept of “escape velocity”: the moment in which life expectancy will increase faster than the elapsed time, when there are very radical advances in the field of life. health (cancer, cardiovascular problems, etc.). That’s why it makes a lot of sense to arrive in good physical and mental shape at that moment, which will happen (hopefully) not too far in the future. Healthy habits, with this economistic mental set, have, as they would say in the discipline of Adam Smith and John Maynard Keynes, “positive net present value”.

Leave a Reply

Your email address will not be published. Required fields are marked *